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Spoiler for Gold Rebounds on Bullion Buying:

Gold rebounded on Thursday as physical bullion investors were tempted back to the market by the previous session's 5 percent price plunge, its biggest one-day drop since before the collapse of Lehman Brothers in October 2008.

Spot prices fell more than 5 percent on Wednesday after Federal Reserve Chairman Ben Bernanke gave no hints that a third round of quantitative easing, which had been a key support of gold prices, was imminent in the world's largest economy.

"We had a sense that the gold market was increasingly pricing in QE3, and obviously Bernanke has put a dampener on that," said Standard Bank analyst Walter de Wet.

In key Asian physical gold markets overnight, jewelers, traders and investors rushed to take advantage of the nearly $100 drop in prices. "It's been a long time since we (saw) such decent buying," said one Hong Kong-based dealer.

"We've seen physical flows coming off steadily since the beginning of February," said de Wet. "The physical demand is just not there when gold is at $1,750-$1,800, and you really need that on top of the financial demand to push gold much higher."

He added: "We've seen some decent buying below $1,700 early this morning. That is coming through, but it will probably fall away as we reach the $1,750 level."


"We think a large part of why gold conceded so much came down to three other factors - $1,800 was proving to be too much of a hurdle and a certain staleness had entered the market; positioning had increased very swiftly in recent weeks; and physical demand has been non-existent," said UBS in a note.

"What the physical community do from here is hugely important," it added.